The New York Times recently published a series of infographics demonstrating the extent to which current zoning laws restrict development in Manhattan. New York City’s zoning code has grown increasingly binding since it was first introduced by planners in 1916. Relying on data from Quantierra, a New York real estate firm, the graphics show that forty percent of existing buildings on the iconic island would not be permitted by today’s rules.
Most of the approximately 17,000 buildings in question would be illegal to construct under current rules because of their height, massing, or density. Quantierra’s Stephen Smith and Sandip Trivedi note that beloved neighborhoods including Chinatown, Washington Heights, and the Upper East Side would be vastly different if they were built today because their building height and density wouldn’t be permitted.
Zoning imposes an aesthetic cost by eliminating some of the variation and grandiosity of architecture that gives beautiful buildings and neighborhoods their character. When development is limited by planners’ requirements, we tend to see boxy buildings that make use of allowable square feet rather than architects’ creativity. But more importantly, zoning prevents housing developers from responding to changes in demand. If demand to live in a city increases due to its job opportunities, homebuilders will respond by providing more housing units in larger, denser buildings. But rules that restrict development by setting height or density limits prevent this process from taking place. In real estate markets constrained by zoning, we instead see wealthier residents bidding against less wealthy residents for existing housing stock. Developers, in turn, focus on remodeling and refurbishing rather than increasing the supply of housing.
New York is far from alone in its zoning code that drastically alters development from what we would see in a free market. Economists Ed Glaeser, Joseph Gyourko, and Raven Saks have researched what they call the “zoning tax,” the cost that regulations add to the cost of housing by restricting supply. They find that most major U.S. cities have a zoning tax that accounts for over 10 percent of the price of the average home. As of their 2005 study, San Francisco had the highest zoning tax in the country at over 50 percent. This means that a homebuyer purchasing a million dollar home would be able to buy comparable housing for $500,000 if developers were allowed to respond to the demand for housing by increasing the supply of housing.
High zoning taxes create cities where not only low-income people struggle to pay for adequate housing, but middle and even high-income households find their budgets stretched by exorbitant housing costs. In Washington, DC, residents making over six figures are eligible for reduced priced housing due to very high costs in many of the city’s neighborhoods. If suppliers were allowed to respond to demand for housing by building more of it, subsidized units for wealthy people wouldn’t be necessary.
Some policy analysts who have argued that if people can’t afford housing in an expensive city, they should simply move to farther out suburbs or to another city entirely. And since development is so stifled in cities, most population and job growth is occurring in suburbs. But the most productive and highest-paying jobs are still centered in cities. Demand to live in New York City and the Bay Area is high because these are the most productive areas of the country, where people of many different skill sets can find opportunities to maximize their contributions to their industries and in turn to maximize their earning. Workers in expensive cities already spend hours commuting each week, and suggesting that they waste more time that they’re not working or enjoying their time off is impractical.
Since New York adopted the country’s first zoning code a century ago, many other cities have also enacted rules that limit the amount and types of housing developers can supply, leading to higher housing costs in many of the most desirable areas of the country. These rules were enacted with minimal consideration of the costs they impose on individuals who are unable to afford to live where they wish in their preferred location, and to the large costs of making the most dynamic job markets inaccessible to vast swaths of people. Zoning makes people who live in expensive cities poorer, and it also reduces innovation and economic growth for the entire country and the world.
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Emily Hamilton is a policy research manager for the Mercatus Center at George Mason University.